Why Settling Your Divorce Might Be Your Biggest Mistake Ever

There is no question that settling a divorce can offer extensive benefits. The sooner a case is over; the sooner everyone can move on with their lives and build their own futures. Settlement generally results in lower legal fees, because there are fewer courtroom appearances. And settling a divorce gives the parties the power to decide what they will and will not agree to, instead of placing the decision in the hands of a judge. These are significant benefits that should be weighed carefully. 

While it's true settlement can be a good option for many couples, settlement could be a significant miscalculation for those with complex assets and finances. Errors could result in irreparable harm to your financial stability for years to come.

Divorce Settlements Are Permanent

If you should decide to settle your divorce, once the agreement is signed and approved by the court, it becomes your divorce decree and is legally binding. You will not have another opportunity to reopen the case, change your mind, or present a new argument. A right to appeal exists; however, an appeal is only considered if there has been a mistake by the judge in applying the law. 

An appeal is not available if you regret your decision, discover information you should have known, or experience a change in your circumstances after the divorce. Your divorce decree is permanent, and thus your entire case must be thoroughly investigated, considered, and evaluated before any settlement offer is considered. 

Your Needs Are Evolving

Your mindset, realities, and needs may be vastly different on the day you file for divorce than on the day your divorce is decided. Because of this, it is critical that you not leap into a settlement before you have had time to evaluate your future, evolve as a single person, and consider all of your paths forward. 

When facing a divorce, it’s common to simply want to get it over with as quickly as possible, move past the pain, and heal. Unfortunately, the involved nature of a high net worth divorce means that quickly settling can harm your financial situation. As painful as it may be to continue to remain married, it is often the wisest choice to give yourself time to evaluate your situation before making any decision thoroughly. 

Complex Assets Require Detailed Investigation

High net worth divorce incorporates many assets that may include: 

  • Intellectual property such as patents, trademarks, and copyright
  • Artwork, jewelry, and collectibles
  • Businesses, business interests, and shared business ownership
  • Interstate and international assets
  • A variety of real estate including residential, commercial, and vacation properties
  • Complex investment portfolios
  • Stock options

It is impossible to decide on a settlement in a divorce case without a thorough detailing of every single asset, which can take many months to compile accurately. If your spouse is intent on concealing or hiding assets, your attorney will need to work diligently with other professionals (such as forensic accountants and investigators) to unearth every asset involved in the divorce. Settling without knowing what assets are available to you is a tremendous mistake.

Enumerating all of the assets to be divided in the divorce is just the first step, however. Once the assets have been itemized, each asset must be valued. Valuation is a complex process that requires the use of expert evaluators who are experienced in each particular field. Obtaining an accurate valuation ensures that the property division will be fair. It is impossible to agree to any settlement until all the assets have been identified and equitably valued, and doing so will result in irreparable harm to your financial situation. 

Spousal and Child Support Are Complex

While it is true that New York state uses the Child Support Standard Act to govern the amount of child support that must be paid, high-income couples are an exception to that law. The state guidelines apply up to an income of $148,000. Once a family's income exceeds that amount, the court has discretion when it comes to establishing the amount of child support. 

It is absolutely essential that your attorney has the opportunity to present a detailed argument on your behalf, relying on a variety of factors to ensure that child support is established at a level that is fair in your circumstances. If you are the parent who will be receiving child support, you should never settle for the base amount established in the CSSA.

Spousal support (also called alimony or spousal maintenance) is another important calculation for your attorney to present a detailed argument. The issue is not only the amount that should be paid but also the duration of the payments and whether they should be set for a specific time period or a lifetime. 

Just as there is a cap on the income considered when establishing child support payments, New York has a statutory cap on the income that is considered when setting spousal support. The statutory formula is used for income up to $184,000. When the couple's income exceeds that cap, there are an array of factors that the court must consider in establishing an alimony amount. The court has a lot of discretion in setting an award of spousal maintenance, so it is never wise to agree to a settlement without extensive legal negotiation.

Tax Consequences Are Significant

Since your divorce involves distribution of financial assets, it has significant tax consequences. Distribution of an asset cannot be accurately considered without being fully informed of its tax ramifications. While it is true that the transfer of an asset as part of correctly executed property distribution in a divorce does not trigger taxation, the assets and their income will be taxable in the future when the asset is sold, or the income is received. 

The basis of each asset must be determined to calculate any taxation that will apply to it correctly. Capital gains exclusions are another key tax factor that must be considered. It is also important to preserve the status of retirement assets so that they do not become taxable once transferred. When a divorce includes interstate and international assets, various tax laws must be considered and evaluated to understand future implications. A divorce settlement should never be implemented without a thorough evaluation by a taxation expert. 

Divorce settlement might sound like a great idea, but it is often a bad idea for a couple with many assets. Instead, your highly skilled legal counsel will leverage the court system to ensure you receive a beneficial property distribution that takes all of the many factors at play into consideration. 


Naomi Schanfield

Naomi Schanfield concentrates on all aspects of matrimonial and family law, including, prenuptial and postnuptial agreements, divorce, equitable distribution, child custody and visitation, support matters, family offense disputes, and domestic violence.

To connect with Naomi: 212.682.6222 | Online

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